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Uber-bear John Hussman is still uber-bearish

Mason Granger, on the other hand, is not

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at mfawcett@albertaventure.com

Apr 29, 2014

by Max Fawcett

As John Maynard Keynes famously said, the market can remain irrational longer than you can remain solvent. That’s an aphorism that’s probably haunting fund manager John Hussman these days. After all, he’s been bearish on the markets since at least 2011, and his results have suffered accordingly. But unlike market timing crackpots like Harry Dent or former television hosts-turned failed hedge fund managers like Ron Insana (to be fair, he is one of a kind), Hussman’s continued pessimism comes with some credibility. And he reiterated why he feels that way in his latest note to investors. “The likelihood is poor that from current price levels, broad equity investments – even held for nearly a decade – will generate any positive investment return at all.” Yikes.

And while he’s clearly aware that his bearish posture hasn’t generated anywhere near the returns other fund managers have produced, he sounds a note of caution about why it’s important to pay attention to the long game. “Among the saddest notes I received in the 2000-2002 and 2007-2009 bear markets were from people who had short investment horizons (and were therefore “forced” sellers) and lamented ‘I wish I had listened.’ Whatever market returns we missed in the anticipation of those market declines were easily lost by the market anyway once the bears gained control. Recall that the 2000-2002 decline wiped out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to May 1996. The 2007-2009 decline wiped out the entire total return of the S&P 500 – again in excess of Treasury bill returns – all the way back to June 1995. I doubt that much of the market’s gain since 2009 will be retained by investors over the completion of this cycle. The run-of-the-mill bear market retraces more than half of the preceding bull market gain. Those that begin from rich valuations wipe out far more.”

On a more optimistic note, Sentry Investments portfolio manager Mason Granger was on BNN last year to talk about the energy sector, and he was unapologetically bullish about it. According to recent global fund manager surveys, Granger said, it’s clear that the energy space is coming back into favour. “What we’ve seen is an inflection point here recently with the April fund managers’ survey. Professional investors are starting to come back into the space.” And with heightened M&A activity and a strong demand for financings, he thinks the risks for investors are mostly to the upside. In other words, now is not the time to get short – or even necessarily take profits. “We think the rally we’re having in the stocks is a durable one. They’re not expensive relative to other sectors that are available to investors, and I think we can expect strong returns going forward.”

In terms of specific names, he picked Bankers Petroleum (TSE:BNK) despite the fact that it’s been on a tear over the last 18 months. “The company’s done exceptionally well recently,” he said, and noted that CEO David French deserves much of the credit for the company’s growing credibility among investors. His second pick was Bellatrix Exploration (TSE:BXE), which is another name that’s rallied hard but still has some runway left in front of it in Granger’s opinion. “It’s very hard to find a stock with this type of a valuation that can offer you 30 per cent per-share production growth. This is one such stock.” Finally, he tapped Bonterra Energy (TSE:BNE), which he described as the best capital allocator in the space. “We hold this out as the pre-eminent dividend-paying light oil based stock in western Canada, [and] we think you can expect ongoing dividend increases and ongoing production growth.”